What is Calculated Risk?

Entrepreneurs are risk takers, you hear this all the time. But does that mean that they will take any and every risk? Will they jump off a plane without a parachute? NO! Of course not.

What entrepreneurs do is to take calculated risks. They work out how much risk is involved in their idea, and then they cut it down as much as possible. Once they are comfortable with the risk level, they will be confident in executing the project. Entrepreneurs, unlike all others will not need every risk to be completely eliminated before they embark on their journey. They are willing to start even if some risks still exist.

So how do we mitigate risk?

We first start with research. As per your business idea study the following thoroughly;

Communication Channels: How to get the word across? (marketing) What channels will work best?

Now we look at the costs of setting up and running the business. We identify the risk by the amount of money we put in. All businesses have chances of failing, how much you lose will depend on how much money is put in. Now to note, for some people, $10,000 will be a lot of money, and for some people $10,000 is nothing. So it is best to see risk according to your comfort level. You could start a cupcake business with $100(home business) and then scale up, or you could open a bakery with $100,000 on day one. The amount of money you put in the more risk there is.

Here are some things to look at to which you can attribute a dollar value:

Materials, rent, staff, website

Cost of marketing, market research and market testing

Cost of acquiring technology

Start Ups usually do not have huge budgets to spend on market research and testing. So to cut the risk of knowing if your product will be accepted by the market, you should so the following.

Go to forums (preferably similar industry). Discuss your problem and solution vaguely. If people are facing the same problems and like your solutions, then you may be on the right track. E.g.Problem: I am a design student, who does not have much funds to make and store t-shirts to sell, I cannot afford to test designs and keep dead stock if they fail. It would be nice if I could pre-sell my t-shirts, and once they hit a minimum, I could print them.Solution: What about an online platform for group T-shirt buying?

Test with Family and Friends: It is always good to test out your ideas on family and friends. Since they know you, it would be easier to collect proper true feedback. Remember to take all criticism and negative feedback in a POSITIVE way. Use it to tweak and make your product better.

Soft Launch/Beta Launch: It is better to launch your product to a small group of people first, rather than to the public at large. Your service may not be able to handle a large influx of visitors in the beginning. By launching to a smaller (invited) group of people, you will be able to manage teething problems that may occur. Inviting certain experts from your field may also bring in some good advice, but you should be careful of competition as well

The small steps above will help you to cut your risk down as much as possible. The more you know about your business, the less risky it becomes. Do thorough research and ask yourself as many questions as you can. Play the devil’s advocate, or get others to do it for you. Get friends and family to play customers, and even do a beta launch, to bring the community in.

Remember it is all about cutting down risk, and not jumping off a plane without a parachute.

Activity: We will be uploading today’s Activity in the EntreCity Classroom later in the day.CLICK HERE to Sign Up for the classroom access.

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About Entrecity

The idea behind EntreCity is to help entrepreneurs build successful businesses. We want to achieve this by helping people build an entrepreneurial mindset and to arm them with the technical tools to start and grow businesses. Whether or not you are ready to start a business, EntreCity aims to help everyone to think with an entrepreneurial mindset.